BrookEden project (1)
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Jan 9, 2024
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SHA612: Control of Hotel Real Estate
School of Hotel Administration, Cornell University
Project: Changing the Letter of Intent Provisions
Instructions:
Complete the following project based on the BrookEden Case Study and the two Letters
of Intent. To submit this assignment, please refer to the instructions in the course.
Part I:
Consider the way the provisions of
Letter of Intent A
work together. For this question, put yourself in the position of the owner.
The hotel company says the management fee is a deal breaker because it asks the hotel company to assume too much risk. How might the owner respond with new provisions that would sweeten the deal for the hotel company while making any changes fee neutral for the owner?
From the position of the owner, write a first offer response suggesting a change or package of changes that you feel the hotel company might accept. You must also include a fallback position, a second series of changes that you are confident the hotel company will accept.
Your answers:
Initial Term: First Offer Response:
Extending the initial 10-year expiration to 12- year expiration. Fall Back position:
Extending the initial 10-year expiration to 15 – year expiration.
This would be an indication for a longer-term business partnership. Extension Terms: First Offer Response: One (1) period of two (3) years each at the option of hotel company. Fall Back position: Two (2) period of five (5) years each, at the option of the hotel company only. Contribution to the FF&E and Capital Reserve:
Retain it at 5%
© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.
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SHA612: Control of Hotel Real Estate
School of Hotel Administration, Cornell University
Termination Upon Sales: First Offer Response: Prior to offering the Hotel or negotiating a sale with any third party. Owner will give Hotel Company (30) days in which to attempt to negotiate a mutually satisfactory agreement for purchase of the hotel. If Owner and Hotel company aren’t able to enter into an agreement for purchase of the hotel within (30) days, owner will extend additional (5) days for reevaluation. Fall Back position: Prior to offering the Hotel or negotiating a sale with any third party. Owner will give Hotel Company (45) days in which to attempt to negotiate a mutually satisfactory agreement for purchase of the hotel. If Owner and Hotel company aren’t able to enter into an agreement for purchase of the hotel withing (45) days, owner will extend additional (5) day for reevaluation. Performance Termination:
First Offer Response: The RevPAR for the hotel should be the test year and be kept at
95% and 90% respectively until the true primary and secondary comp set identified – (on a trailing 12-month basis) – Part II
: Now consider the way the provisions of
Letter of Intent B
work together. For this question, put yourself in the position of the hotel company. During negotiations, the owner says the protected territory clause, requiring the owner to demonstrate material harm from a new hotel managed by the hotel company, is a deal breaker. As the hotel company, you are unwilling to give up this provision. Your assignment is to prepare two possible response strategies.
First, prepare a strategy that addresses the owner's concerns directly while protecting your interests as a hotel company. Rewrite the protected territory clause in a way that addresses the owner's concerns without inhibiting the hotel company's ability to operate a competing hotel.
Second, prepare a strategy that seeks to avoid changing the protected territory by "sweetening the deal" in other ways. Suggest a change or package of changes that you feel the owner might accept, without changing the protected territory clause. You must also include a fallback position, a second series of changes that you are confident the owner will accept.
a)
The three (3) mile radius surrounding the hotel known as the "BrookEden Restricted Area” as more particularly described in Exhibit A-2. The Hotel Company shall be prevented from operating a brand within same collection
(considering it the hotel company is Hyatt or Hilton) or competing hotel within the Protected Territory for the Initial Term only if the Owner can show material
© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.
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SHA612: Control of Hotel Real Estate
School of Hotel Administration, Cornell University
harm to the BrookEden Hotel that would be in addition to the harm to the BrookEden Hotel should any other Hotel Company operate such competing hotel
.
b)
The three (3) mile radius surrounding the hotel known as the "BrookEden Restricted Area” as more particularly described in Exhibit A-2. The Hotel Company shall be prevented from operating a competing hotel within the Protected Territory for the Initial Term only if the Owner can show material harm to the BrookEden Hotel that would be in addition to the harm to the BrookEden Hotel should any other Hotel Company operate such competing hotel.
First Offer Response:
A 15% increase in RevPAR index and extend the owner the right of termination along with revaluation of extension term. Fall Back position:
A 10% increase in RevPAR index, as well as the option for the owner to choose the General Manager amongst the 3 candidates hotel company picks and interviews. © 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.
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